Internet & Tech

Island hopping

Alibaba in major Southeast Asian e-commerce swoop

Chairman and Chief Executive of Alibaba Group Jack Ma delivers a speech at the 8th Netrepreneur Summit in Hangzhou

Watch out for the Komodo

About a million items are now being offered with a same-day delivery service to Amazon Prime customers. And in cities like New York and London the e-commerce giant promises even faster two-hour drop-offs.

Spare a thought for online shoppers in Indonesia, however, where packages can take much longer to arrive. Shipments to Tobelo on the eastern island of Halmahera travel thousands of kilometres by air, the Asian Nikkei Review reports, from the capital Jakarta to Ternate on a nearby island. Then they are shipped by sea to a town called Sofifi, before passing through steep mountains by truck to their final destination.

Mastering this kind of logistical logjam was said to be one of the factors in last week’s news that Alibaba is buying a controlling stake in Lazada, a leading e-commerce firm in Southeast Asia. The deal values Lazada at $1.5 billion and is Alibaba’s largest overseas transaction to date.

Alibaba’s boss Jack Ma has set a goal of making more than half of the company’s sales internationally. Currently, less than a tenth of its revenues come from abroad, but with Lazada it gets better access to six Southeast Asian markets – Indonesia, the Philippines, Malaysia, Vietnam, Singapore and Thailand – in a single swoop.

Although online sales for the six countries were substantially less than Alibaba’s 2015 revenues, their growth potential is attractive. About 3% of the region’s retail trade is transacted online (a third of China’s rate) and the landscape is fragmented, with no one controlling more than a fifth of the market.

Heavyweight competitors like Amazon and eBay aren’t deeply entrenched either. That should make it easier for Alibaba to grow, reports Jiemian, an internet newspaper that focuses on the tech sector.

Lazada already features thousands of Chinese merchants and many of the electronic products on its platform are sourced from China. Its business model has also been moving in Alibaba’s direction since it was launched four years ago, turning to the asset-light style favoured by its new owner and acting more as a marketplace than as a retailer of its own goods.

The takeover follows Alibaba’s increase of its stake in SingPost, Singapore’s postal service provider, last year. There’s little doubt that more local knowledge will help, especially for far-flung markets in the Philippines and Indonesia.

“In some places, there’s just no address. It’s like ‘take the house on the left’. And in many places you have to take a boat to get there… It can be several days or even weeks to reach some very remote islands,” Pierre Poignant, Lazada’s chief operating officer, told Reuters last year of the delivery difficulties.

Setting up as a brand new entity in some of these markets would have represented a genuine challenge for Alibaba, despite its dominance in its gigantic home market. Most Chinese speak Mandarin so it can reach hundreds of millions of people with a single site or app – in Southeast Asia that won’t work. Multiple languages are required in addition to Chinese and English.

Heavy investment in road and rail is making delivery easier and cheaper in China, especially between cities – while payment methods and sales taxes are much more uniform than in the diverse markets in which Lazada operates.

Hence the conclusion that it was better to buy into the region than start from scratch: combining Lazada’s four years of local experience with Alibaba’s financial resources and technical expertise.

Nonetheless Reuters was soon reporting warnings from the boss of Indonesian e-commerce platform Tokopedia that Alibaba will have a fight on its hands. William Tanuwijaya went reptilian in his response, invoking Indonesia’s largest lizard, the Komodo dragon, in a throwback to Jack Ma’s famous prediction that Alibaba would repel eBay’s challenge in China like a “crocodile in the Yangtze river”.

“I say today that Tokopedia is the Komodo in the 17,000-island archipelago,” Tanuwijaya said of the battle to come. “Fighting in a river, the Komodo will lose, but fighting in the jungle on one of our islands, the Komodo has a pretty good chance to win.”

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